The Indian Impact Investor Council – A Regulatory Body to Set Norms for Impact Investment

impact investment india

Nine entities involved in the Indian impact investment landscape (i.e. picking up equity stakes in businesses that aim at both financial and social returns) have recently come together to form the Indian Impact Investor Council (IIIC).

Why Regulate Impact Investment?

The IIIC justifies the need of a central regulatory body by giving the example of the derailing of the microfinance industry in India three years ago. Between 2006 and 2010, various funds from venture capital and private equity poured into the Indian microfinance industry. This resulted in tremendous pressure to grow and caused companies to commit excesses and indiscretions while dealing with their underprivileged and impoverished borrowers. Vineet Rai, Managing Director of Aavishkaar Fund, one of the body’s founding members, states that “Microfinance did not have a self-regulatory body. We’ve seen the problems. Being accountable is a good thing, especially being accountable to ourselves.” and “The need for a self-regulatory organisation came from the experience of microfinance”.

Objectives

The group’s objective is to define what impact investors can and cannot do in their investment practices. They are looking to organise impact investing in India in terms of both philosophy and structure and hope to increase the number of their members from the initial 9 to 30 by the end of the year.

In the current stage, IIIC members are still debating the standards and expect to take another year to finalise them. Several questions have not fully been answered yet such as: how to measure social impact, is it possible to have only one definition, which sectors qualify for impact investments, what should the minimum holding period be, etc. According to Sandeep Farias, Managing Director of Elevar Equity, which manages $94 million under two impact investing funds, states “We will be looking who really qualifies to be in this space as there are so many players today”. Rai further elaborates “We are looking at the economics of impact”. Their definition of an impact fund states that 100% of the portfolio needs to deal with low income.

Members

IIIC will initially consist of nine members, including Aavishkaar, Elevar Equity and Unilazer Ventures, Omidyar and the family office of Ronnie Screwvala. The list of potential members contains large developmental financial institutions such as DFID, IFC and USAID and initial feedback is very positive. Anil Sinha, regional head, advisory services, South Asia, IFC sais “We will come in. No harm in supporting the council. It’s a good idea.”

However, the members need to be aware of potential problems. Harold Rosen, CEO of US-based Grassroots Business Fund, an impact-investing fund, warns that running a self-regulatory body like the IIIC can be highly complicated. The biggest concern he articulates is that it may be very difficult to prescribe general practices that all players are willing to accept.

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Microfinance in Myanmar

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According to the International Finance Corporation (IF C) and the Consultative Group to Assist the Poor (CGAP), the microfinance sector in Myanmar needs to be established quite urgently to support the country’s economic growth. In their approach, the two organisations define microfinance as financial services for low-income people, including savings, credit, transfers, and insurance.

 

Microfinance in Myanmar – Sector Assessment

A survey with the title “Microfinance in Myanmar – Sector Assessment” published by IFC and CGAP highlights that demand for microfinance currently exceeds supply four times as the country’s economy is expanding at a breathtaking speed after decades of isolation. The report further states that the total of outstanding loans in Myanmar currently stands at roughly $283 billion whereas demand is estimated to be as high as $1 billion. Demand is particularly high among farmers in the country’s rural areas, which is also where more than two-thirds of the total population lives.

In November 2011, a microfinance law was introduced and allowed the development of a nascent microfinance industry. This law offers the opportunity to support existing institutions in Myanmar as well as to establish new organisations with the long term goal of building a commercially sustainable microfinance network that improves access to finance for small and medium entrepreneurs and the rural population.

The report constitutes the first publicly available assessment of Myanmar’s microfinance landscape since the enactment of the microfinance law in 2011.Results clearly point out that the financial sector of the country is highly underdeveloped compared to the rest of the East Asia Pacific region. Myanmar is still one of the poorest countries of this region and increased access to financial services would significantly support its economic development by helping small and medium enterprises, which currently form the backbone of Myanmar’s economy, to grow and create jobs.

While the microfinance law signals government commitment to financial inclusion, authorities and regulators are facing immense challenges in bringing policies and regulations in line with the rapidly growing economic activity of the country. One of the reports co-authors states that “We recommend that Myanmar’s financial regulators and supervisors adopt international good practices for microfinance as quickly as possible.”

Please download the full report here >>

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ADB invests in Simpa Networks to Provide Rural India with Energy

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By 2015, Simpa Networks’ pay-as-you-go solar energy solution is bound to provide more than 60,000 household in rural India with better access to electricity. Supported by a $2 million equity investment by the Asian Development Bank (ADB), the company will offer an affordable clean energy solution to the underserved and underprivileged consumers in India.

Simpa Networks

The company’s mission is “to make modern energy simple, affordable, and accessible for everyone.” In order to achieve this goal, the company introduced a business model that will make sustainable energy choices affordable to the poor.

How it Works

Simpa’s pricing model is highly innovative and called Progressive Purchase. Customers make a small initial down payment for the solar system and then pre-pay for their future energy service. They can conveniently top up their systems in small user-defined increments via a m obile phone. Each of these payments also adds towards their final purchase price. Once the purchase price has fully been paid, the system unlocks permanently and continues to produce electricity without the need of any further payments.

The Importance of Energy Access

Today, there are approximately 1.6 billion people with no access to electricity and another 1 billion with only very unreliable access. Without this access, the poor depend on battery powered flashlights or kerosene lanterns for light and are unable to break the cycle of poverty as they are unable to take advantage of the numerous productive uses of energy. In addition, kerosene light comes with high operating costs, poor light quality and dangers to health and home.

Access to energy is therefore essential for every family’s economic livelihood, safety, health, educational achievement, and overall quality of life.

ADB’s Motivation to Invest

ADB hopes that the success of Simpa Networks could lead to increased venture capital funding for sustainable business models that deliver goods and services to those at the bottom of the economic pyramid.

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Social Entrepreneurship in China

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The Emergence of Social Entrepreneurship in China

Social entrepreneurship is still a relatively young phenomenon on China and started to emerge in 2004, when the books The Rise of the Social Entrepreneur (Charles Leadbeater) and How to Change the World: Social Entrepreneurs and the Power of New Ideas (David Bornstein) were published and widely discussed.

In the same year, the Global Links Initiative was launched in China and was the first membership organisation that promotes social enterprises and social entrepreneurship in the country.

The following years were characterised by an increasing number of social enterprise related articles and research papers in academic journals, forums and magazines and in 2007, the first International Forum on Social Entrepreneurship was organised by the Global Entrepreneurship Research Center of Zhejiang University, the Skoll Centre for Social Entrepreneurship of Oxford University, and the Entrepreneurs School of Asia.

Since 2004, China has also witnessed the launch of social enterprise incubators that promote the concept of social entrepreneurship in China and provide vital resources to support the establishment and the growth of new ventures. The two first incubators entered the market in 2007 and are called China Social Entrepreneur Foundation and Non-Profit Incubator.

 

Political and Institutional Challenges

Just a few years ago, social entrepreneurs in China faced severe political, institutional and cultural obstacles. The social sector used to be tightly regulated by the state and the state was suspicious of independent non-state actors.

One example of the challenges that arose from this tight control are complex registration laws that significantly hampered activity in the social sector. The state imposed a dual administration system that required new ventures to register with both the Ministry of Civil Affairs and a supervisory agency, which was government run. This agency was known for rejecting requests from non-profit organisations. As a result, several organisations registered as for-profits instead but eventually failed because they were lacking sustainable business plans.

However, the government recently came to understand that non-profit actors pose very little threat to the country’s political stability. Political institutions opened up and allowed the third sector to flourish. In 2009 was the first time that the Chinese government publicly supported social venture initiatives when the Bureau of Civil Affairs partnered with the Non-Profit Incubator to organise the first Shanghai Community Venture Philanthropy Contest. Ever since, the Ministry of Civil Affairs articulated its intentions to further promote a favourable environment for social enterprises for example by reducing barriers to registration and increasing the transparency and governance of the sector.

But not only the political and institutional environment in China underwent significant changes, the cultural environment also became more favourable for social entrepreneurs. Philanthropy used to be very rare in China because the culture emphasised self-interested pursuit of profit. However, with the focus of the government slowly shifting from economic development towards social issues and with issues such as the Sichuan Earthquake (2008) and the challenges of rural migrants and poverty in rural areas rising, social entrepreneurship has become more widely accepted and understood.

 

Future Prospects

China is likely to see social entrepreneurship rise significantly in the near future. This will be driven by the large population, a plethora of social issues, a large number of young people with a business education, and the government’s increasing acceptance and support of independent social businesses. Existing social ventures need to demonstrate their sustainability which will motivate new social enterprises to enter the market and explore opportunities to fight social illnesses.

While the social enterprise sector in China is still rather young compared to that of several other countries in the region, it is likely to catch up very soon.

 

 

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Social Enterprise in Pakistan: Unlocking Innovation Through Enterprise Incubation

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70 percent of Pakistan’s population is under 30. The country is facing a demographic youth bulge, which presents a fertile ground for developing human talent. In order to ensure a more stable future of the country, there is a strong need to offer quality education, build managerial capacity and conduct skills training.

Currently, businesses in urban areas are still fraught with severe corporate governance issues, political disputes and contractual obligations. In addition to that, religious tensions mainly in rural areas create political activism. This combined with frequent policy changes resulted in dampened ambitions and entrepreneurial actions, which is why it is crucial to re-engage entrepreneurs in Pakistan and start this process by harnessing the skill-sets of the youth.

The issue of unleashing the innovation potential of Pakistan’s social entrepreneurs is further explored in a report called Social Enterprise in Pakistan: Unlocking Innovation Through Enterprise Incubation, published by the Economic Policy Group earlier this month.

 

Report Findings

The report suggests the establishment of incubator hubs in business schools to promote knowledge sharing and networking. Further, it claims that there is an urgent need for new policy frameworks to facilitate social innovation and leverage Pakistan’s home-grown capacity in the global economy.

In this context both public and private investors can play a crucial role in shaping the ecosystem of enterprises and hence unlocking the full potential of Pakistan’s young social entrepreneurs. Both sectors’ investment in human talent as well as the development of new institutions will allow for a dynamic movement where entrepreneurial individuals are encouraged to take action and enable change.

In order for this to happen, the report makes clear that both investor confidence and entrepreneurial confidence have to rise. This change of mindsets can be achieved through training programs, mentorship and education in combination with a stable, enabling environment.

To allow for a successful socio-economic development of Pakistan, it is also crucial that there exists a careful due diligence of operating entrepreneurs as well as an understanding of the social fabric within urban and rural settings. Only then will the newly educated class be able to take full advantage of the opportunities arising from business incubator hubs and those at the Bottom of the Pyramid receive benefits of financial inclusion.

The reports finishes by pointing out that this is the perfect time to create a knowledge economy around the social innovation movement in Pakistan as there currently exists optimism within internal policy circles as well as the international community on Pakistan’s ability to catalyse enduring change in its economy.

You can find the full report with all its findings and suggestions here >>

 

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ARZU Studio Hope – Empowering Afghan Women

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ARZU, which means “hope” in Dari, is an innovative social enterprise that aims to empower Afghan women and their families to break the cycle of poverty, earn a steady income and gain access to education and healthcare by sourcing and selling the rugs they weave. The founders correctly understand that all lasting change begins with economic empowerment, typically in the form of small and medium sized enterprises. ARZU is structured as a 501(c)(3) in the United states and is registered as an international NGO in Afghanistan. It operates as a for-profit corporation that uses private sector practices to create jobs in poor rural areas where otherwise little job opportunity exists.

Since its establishment in 2004, ARZU has trained and employed over 1,300 rural Afghans and created direct social benefits to over 4,000 beneficiaries. It also directly and indirectly impacted the lives of tens of thousands of other villagers in the country due to the ripple effect of broad-based community development programs. Up to date, 95% of the venture’s employees were women. In this context, ARZU particularly focuses on unleashing what they call the “Girl Effect”. They do this through mandatory school attendance and internship opportunities to broaden the skillsets of the girls beyond rug weaving.

 

Primary Activities

According to the social enterprise, its primary aim is to rebuild the Afghan civil society through the development of economic opportunity. They aim to:

1)      Empower Afghan women and girls

2)      Develop local human capital through the delivery of benefits including training, education and healthcare

3)      Pilot, evaluate, and document successful and replicable enterprise initiatives, such as vocational training and best-practice model facilities that can stimulate economic growth at the community level

 

Future Outlook

The venture’s top-line goal is to become self-sufficient. Until then, it still requires funding from grants and private donors to fill the gaps. All fundraising is currently done in-house and 93% of the money raised goes directly back to the projects and beneficiaries.

Due to the expansion of rug distribution channels over the past year, and the introduction of a new, low-priced, high volume product called PEACE CORD, ARZU was able to increase its revenues (sales + funding) significantly and is now expected to become self-funding by the end of 2014.

To find out more about ARZU, their projects and their products, please visit their website >>

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SELCO India – Providing Sustainable Energy to the Poor

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Image: SELCO Website

 

I am a huge fan of SELCO India which is why I want to use my blog to introduce them. SELCO India is a social enterprise with the mission “to enhance the quality of life of underserved households and livelihoods through sustainable energy solutions and services”.

SELCO currently employs about 170 employees in Karnataka and Gujarat, spread across 25 energy service centers. Since their foundation in 1995, they have sold, serviced and financed over 115,000 solar systems to their customers!

The social enterprise was established with the aim to dispel three myths associated with sustainable technology and the rural sector as targeted customers:

1)      Poor people cannot afford sustainable technologies

2)      Poor people cannot maintain sustainable technologies

3)      Social ventures cannot be run as commercial entities.

They were able to prove those myths to be wrong! SELCO aims to and succeeds in empowering its customers by providing a complete bundle of product, service and consumer financing.

 

SELCO’s key characteristics are:

1)      Products based on end-user needs – going beyond just being a technology supplier but rather customising products based on the customers’ needs

SELCO’s systems utilise solar photovoltaic modules that generate electricity for water pumping, lighting, communications, entertainment, computing and small business appliances. These products can be purchased by both businesses and private individuals and do not need to be connected to a larger network.

 

2)      Installation and after sales service – dedicated regional energy service centers to ensure timely service and maintenance

SELCO offers high quality service for its customers and was able to build long term relationships with over 100,000 satisfied customers so far. Each of their systems is designed to meet their customers’ specific needs. The services offered include:

  • Custom system design
  • Installation
  • Training on proper system use
  • After-sales maintenance and support

 

3)      Standardised financing packages –  create attractive channels for end users to be able to afford systems based on their individual cash flow

SELCO benefits from the potential of the country’s significant rural banking system which allows them to finance sustainable energy solutions for poor rural households. So far, the company has developed partnerships with nine regional rural banks, NGOs, commercial banks and rural farmer cooperatives. These partnerships make it possible for SELCO to enable their customers to obtain the necessary credit to purchase their products.

 

Prizes won

2005: Accenture Economic Development Award

2005: Ashden Award for Sustainable Energy

2007: Ashden Award for Outstanding Achievement

2009: FT ArcelorMittal Boldness in Business Award in Corporate Responsibility

 

To learn more about SELCO, please visit their website >>

 

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